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The copyright privileges to telecasts of Eagles football games were put on the line at oral arguments before the Pennsylvania Supreme Court Wednesday, along with Philadelphia’s right to tax the media receipts of Eagles owners. The arguments presented to the bench, which consisted of only six members with the absence of Chief Justice John Flaherty, discussed complex issues of authorship for copyright purposes, the business privilege tax and the Commerce Clause of the U.S. Constitution. The Commonwealth Court in The Philadelphia Eagles Football Club Inc. v. City of Philadelphia, said Eagles media receipts were properly characterized as copyright royalties for the licensing of a property right. The five-judge panel said that was so because payments that Eagles Inc. received from the NFL resulted from the transfer of Eagles Inc.’s right to telecast games as copyrighted works. The court also said those media receipts were 100 percent subject to taxation under Philadelphia’s business privilege tax. MEDIA RECEIPTS The football team was owned and operated by Eagles Inc. for the tax years 1986 to 1992. Eagles Inc. shared in a percentage of the revenues received by the NFL from a network television contract for the right to televise all NFL games. During those years, the NFL had 28 teams, and each received 1/28 of the contract revenue for all tax years in question. The Eagles team played half its games in Philadelphia and half on the road. All games were televised. In 1994, Eagles Inc. filed petitions with the Philadelphia Tax Review Board, seeking refunds in various amounts for wage taxes and business privilege taxes for those tax years. The tax board held that half the media receipts received by Eagles Inc. should be included in the gross receipts for the Philadelphia business privilege tax assessment as a fee for services performed in Philadelphia. The board said one-half was appropriate because the team only played half its games in Philadelphia. On appeal, the Philadelphia Common Pleas Court reversed in part, ruling that Eagles media receipts were royalties that were subject to taxation under the business privilege tax. The Commonwealth Court affirmed. Commonwealth Judge James Kelley, writing for the panel, said that the Philadelphia Code imposes the business privilege tax on the gross receipts and net income of “every person engaging in any business in the city.” Kelley said related regulations provide that “all patent, copyright and trademark royalties” be included in the measure of tax on receipts. The court ruled that Eagles Inc.’s media receipts were properly characterized as copyright royalties from the licensing of a property right rather than as fees for services rendered. The payment that Eagles Inc. received from the NFL resulted from the transfer of the right to telecast the games as copyrighted works, the court reasoned. The court also found that the tax board did not violate the Commerce Clause by failing to apportion media receipts attributable to football games played outside Philadelphia. APPORTIONMENT At arguments, Joseph C. Bright of Wolf Block Schorr & Solis-Cohen started his argument with what he called a rhetorical question: “What’s wrong with this picture?” He said Eagles Inc. is a multistate organization. He pointed out that Norman Braman, owner of the Eagles team during the relevant period, worked out of the city 70 percent of the time, mostly in his Florida office and New York City. And Bright said the negotiation and drafting of the network contracts on behalf of Eagles Inc. took place in New York City. Yet, Bright said, the city contended it could tax 100 percent of Eagles Inc.’s major source of income. He said a 100 percent tax is not permitted under the business privilege tax. “What should be taxed are the gross receipts from business carried on in the city,” Bright said. “Business was conducted in and out of the city. They should divide the income.” Bright said that the Commerce Clause calls for an equitable tax apportionment but that a 100 percent tax sought by the city “cannot be equitable apportionment.” Bright told the justices that even if they disagreed with everything he had said up to that point, he still had the Constitution on his side. “The Constitution says the gross receipts from a multistate unitary business must be equitably apportioned,” Bright said. As for the copyright issue, according to Bright’s position, the networks could not be paying the NFL copyright royalties for the use of the copyrighted work because the network, not the NFL, was author of the actual game telecast. The networks create the copyrighted work, Bright said. The playing of a football game creates a property right, but it does not create a copyrighted work. Bright’s position is that the broadcasting of a game is a copyrightable work, however, because the broadcaster is adding some sort of creative element to the event. COPYRIGHT Frank Paiva Jr., divisional deputy city solicitor, argued for the city. He focused on the copyright issue. “[Bright] points out that the Eagles claim the networks are the authors, so how could they be paying,” Paiva said. “That’s wrong. They’re not the authors.” Paiva said that it might seem odd that the networks are not the authors of broadcast games when network personnel are behind the cameras and it is the networks that decide what angles to shoot and such. However, he said, in the case of work done for hire, it is the entity for which the work is performed that is the author. “The networks are preparing the copyrighted material for the NFL,” Paiva said. “The NFL then sells the right to use the copyrighted material to the networks.” Paiva explained why the issue seemed confusing. “[A football game] is a live thing going on. It’s being telecast,” he said. “Usually, something is given a copyright when it’s completed. Here, they’re given the copyright as it’s happening. The author is the NFL, and that’s why it receives the copyright royalties.” As for the business tax issue, Paiva said, “the court must find the media receipts are correctly allocated because they are fees for the right to telecast home games.” Paiva said that Bright assumed Eagles Inc. is a unitary business. But that has never been proved, he said. The lynchpin for deciding proper apportionment is whether a business entity is a unitary business, Paiva said. “If it’s not a unitary business, there’s no need for apportionment,” he said. Paiva said Eagles Inc. never established a business presence in another jurisdiction. “The Eagles could not pay taxes to any jurisdiction outside of Pennsylvania,” Paiva said. “The reason is because they are not doing business in other jurisdictions. In order to be doing business there, they’d have to have property there or have an active presence.” Justice Russell Nigro then asked Paiva if the city’s teams could be considered to be doing business in other cities during away games. Paiva said they do not have enough of an active presence. For example, he said, the Eagles team plays in the hometown of its division rivals only once a year. The Eagles play approximately once every six years in the hometowns of nondivision rivals, he said. If other jurisdictions could tax that way, Paiva said, the city would “have all the money it wants” because it could tax businesses that send their employees to Philadelphia for seminars or conferences.

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